Advertisers follow customers to Internet

Spending rises as marketers see what works and what doesn't

Published 10:00 pm, Sunday, April 17, 2005

Five years after the dot-com bubble burst, Internet advertising is finally delivering on its promise.

A passel of industry and analyst reports tell of a strong 2004 and an even better 2005 for online ad spending.

It's still a tiny portion of the entire advertising-dollar pie, estimated to be $12.3 billion of $256 billion in total spending by one account, but the talk is it's only going north.

"It engages people, and production values on the Internet have gone through the roof," said Daniel Stein, co-founder and managing director of EVB, an interactive ad agency in San Francisco whose major clients are Wrigley, LeapFrog and Old Spice. "It's the growth sector -- again."

Stein said that with a clear view of the rubble of the dot-com bust in the rearview mirror. Many thousands of jobs in online marketing went down with dot-com businesses. For many companies, online advertising just didn't work. The world wasn't ready to spend a sizable portion of its advertising budget online.

That may be changing.

The Internet didn't go away, and it has become a transforming and integral tool, particularly for marketers who want to bond with potential customers.

PricewaterhouseCoopers and the Interactive Advertising Bureau, a trade association with more than 200 members, said that Internet advertising totaled about $2.7 billion in the fourth quarter of 2004, the highest revenue quarter the bureau has tracked. The estimate for all of 2004 is just over $12 billion, nearly double the $7.2 billion spent in 2003. The fourth-quarter figure is a 24 percent increase, the bureau said.

"You are starting to see marketers stand up and say, 'You're right, my customer has shifted his or her behavior to online, and I better be there,' " said Greg Stuart, president and chief executive officer of the Interactive Advertising Bureau in New York.

"The experts tell us that, of the time people spend with media, including television, 14 percent of it goes to online," Stuart said. "That is a dramatic shift, going from zero to 14 percent in 10 years.

"If time is our most precious commodity, and that is where consumers are spending their time, marketers will follow," he said.

The phenomenon is certainly paying off for search engines.

Google reported revenue last year of $3.19 billion, up from $1.47 billion in 2003. The results reflect an increase in Web site advertisements.

Web portal Yahoo had revenue of $3.57 billion for the fiscal year that ended Dec. 31, up from $1.63 billion a year earlier.

In the first half of 2004, ad spending in the search category was up 100 percent, according to the bureau, because of the popularity of sponsored ads that are listed next to search results on sites such as Google. Spending was up 25 percent for the banner or display category and up nearly 30 percent for classified.

Online advertising's strong suit is a better sense of accountability, the watchword of the day for marketers, who say they can learn in real time whether a message or interactive elements are effective. Basically, advertisers can see whether someone clicked on an ad and bought something.

"You spend a dollar, and you know what you get for it," Stuart said.

Overall, marketers are increasing their spending as the economy improves.

In a survey released last week, CMO magazine, a marketing trade publication, found that 74 percent of marketing executives anticipate spending more this year. Fifty percent will spend more on advertising and 47 percent will increase interactive marketing, the survey of 543 marketing executives found.

Marketers are beginning to look beyond traditional ad-supported television programming, given today's media fragmentation with so many channels available.

Said Jim Stengel, chief marketing officer of Procter & Gamble: "There must be -- and is -- life beyond the 30-second spot. We must accept the fact that there is no mass media any more, and leverage more targeted approaches."

Robyn Schroeder, a P&G spokeswoman, added, "One of the benefits of using online as a medium in conjunction with other forms of marketing is it provides a permission-based way to offer consumers more information than can be shared in a 30-second television or radio spot."

She noted, however, that at P&G, the world's largest advertiser, each brand has a different percentage of spending on different media.

The form of Internet advertising has evolved through the years. It all started with the ubiquitous banners, which were followed by the even more intrusive pop-up ads. Because the banners and other forms of Internet advertising are a nuisance to many users, the ad industry is trying to engage visitors in an emotional relationship, or, as EVB's Stein puts it, "to keep eyeballs on Web sites a long time."

When Wrigley recently reintroduced the Doublemint Twins, EVB built a site, www.doublemint.com, where twins can upload their pictures and people can visit the site to vote for their favorite.

The agency built www.whensheshot.com for Old Spice, using video shot by the Saatchi and Saatchi ad agency for a TV spot. In its online form, the ad becomes a forum for viewers to mix their own music videos as it hawks High Endurance deodorant.